Financial Statements

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Dividing and Listing the Assets for Your Business

The first part of the balance sheet is the Assets section. When developing this section, you divide assets into two categories: current assets and long-term assets. Remember that you can find most of the [more…]

Examining Liability and Equity Accounts for Your Business

In addition to an Assets section, the balance sheet for a business includes sections for reporting accounts relating to Liabilities and Equity. The Liabilities section is divided into two categories: current [more…]

Formatting an Income Statement for a Business

Before you actually create your business’s income statement, you have to pick a format in which to organize your financial information. You have two options to choose from: the [more…]

Producing an Income Statement for External Use

The income statement you produce for external use — financial institutions and investors — may be very different from the one you produce for in-house use by your managers. Most business owners prefer [more…]

Deciphering the Gross Profit for a Business

Business owners must carefully watch and decipher their gross profit trends on monthly income statements. Gross profit trends that appear lower from one month to the next can mean one of two things: Sales [more…]

Using an Income Statement to Test a Business’s Profitability

With an income statement, you can do a number of quick ratio tests of your business’s profitability. You want to know how well your business did compared to other similar businesses. You also want to be [more…]

Using Your Books to Manage Your Business’s Cash

When it comes to managing your business’s cash, you can make effective use of the data you collect during the bookkeeping process. The key to taking advantage of what bookkeeping has to offer is understanding [more…]

Reporting Extraordinary Gains/Losses in an Income Statement

Many businesses report unusual, extraordinary gains and losses in addition to their usual revenue, income, and expenses in an income statement. Every business experiences an occasional discontinuity — [more…]

Understanding Intangible Assets and Amortization Expense

Many businesses invest in intangible assets. Intangiblemeans without physical existence, in contrast to buildings, vehicles, and computers. Amortization [more…]

Variable and Fixed Expenses in a P&L Report

A business manager needs to know which expenses in a P&L (profit and loss) report are variable and which are fixed in order to analyze a business’s profit behavior. In other words, which expenses change [more…]

Different Uses of “Margin” in Financial Statements

You may come across several different uses of the term margin in financial statements and elsewhere: It may refer to gross margin, to true margin, or to operating earnings. [more…]

Recognizing the Limitations of External Financial Statements

The external financial statements do not provide all the accounting information that managers need to plan and control the financial affairs of a business. Managers who look no further than the external [more…]

Cash Flow Characteristics of Sales and Expenses

When reading their P&L (profit and loss) reports, business managers must understand the cash flow characteristics of sales and expenses. They should keep in mind that the accountant records sales revenue [more…]

Responsibilities of a Corporate Board of Directors

If you’re a small business owner who wants to incorporate, first you must form a board of directors. Boards can be made up of owners of the company as well as nonowners. You can even have your spouse and [more…]

How to Transition Into a New Accounting Cycle

You certainly don’t want to close the doors of your business as you transition into a new accounting cycle and prepare all your year-end reports, such as the financial statements and governmental reports [more…]

Looking at a Business’s Statement of Cash Flows

A business has its choice between two quite different methods of reporting cash flow from operating activities in its statement of cash flows. Financial reporting standards permit either approach — the [more…]

Finalizing the General Ledger for Your Business

After you complete your accounting work for the accounting cycle in which your business operates, it’s time to reexamine your General Ledger. Some accounts in the General Ledger need to be zeroed out so [more…]

Conducting Special Year-End Bookkeeping Tasks

Before you close your business’s books at year-end, you’ll need to carry out special bookkeeping tasks such as checking customer accounts, assessing vendor accounts, and deleting any unnecessary accounts [more…]

Financial Effects of Profit for a Business

Business managers should understand not only how to make profit, but also the financial effects of making profit. Profit does not simply mean an increase in cash. Sales revenue and expenses affect several [more…]

Transactions that Drive the Balance Sheet

A balance sheet is a snapshot of the financial condition of a business at an instant in time — the most important moment in time being at the end of the last day of the income statement period. The [more…]

When to Prepare Multiyear Financial Statements

The three primary financial statements of a business are generally reported in multiyear financial statements, using a two- or three-year comparative format. Generally accepted accounting principles [more…]

Connecting Balance Sheet Changes with Cash Flows

The numbers in the statement of cash flows are derived from the changes in a business’s balance sheet accounts during the year. Changes in the balance sheet accounts drive the amounts reported in the statement [more…]

Why Financial Statements Differ for a Business

The accounting method that a business chooses has an impact on the bottom line for the business’s financial statements. For example, a company may use aggressive accounting methods that boost recorded [more…]

Understanding Profit and Loss Reports

Profit performance reports prepared for a business’s managers typically are called P&L (profit and loss) reports. These reports are prepared as frequently as managers need them, usually monthly or quarterly [more…]

Connecting the Income Statement and Balance Sheet

When an accountant records a sale or expense entry using double-entry accounting, he or she sees the interconnections between the income statement and balance sheet. A sale increases an asset or decreases [more…]


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